Property-casualty insurers can be expected to increase their useof claims reserve monies to bolster earnings this year, accordingto an investment bank analysis.

Morgan Stanley property-casualty analyst William Wilt noted thatreserve releases barely accelerated last year when compared to2005.

That trickle, he said, could be explained by some adversedevelopments from the 2005 hurricanes or some legacy liabilitiesfrom before 2001.

But another explanation is possible.

“A cynic might observe that releases were low in 2006 simplybecause reinsurers and insurers did not need them to create healthyreturn on equity figures,” Mr. Wilt wrote.

As pricing competition accelerates and margins decrease,improvements in combined ratios remain problematic, and so-called“cookie jar” (held in reserve) releases will help boost earningsper share and book value growth numbers.

“Every analytical fiber in our collective bones tells us thatreleases will accelerate in 2007,” Mr. Wilt wrote.

“We don't expect the dam to burst in 2007, but as pricecompetition accelerates and assuming a more normal year forweather, we think the age of 2002-2004 will allow for a rising tideof take-downs,” he added.

The credibility of reserves for accident-years 2002-2005 will bedifficult to deny by the end of this year and definitely next,according to Mr. Wilt.

“While we appreciate conservatism as much as the next person,there will come a time when the dire warnings of the perils ofreleasing reserves too early will wear thin,” Mr. Wiltconcluded.

In a related observation, Mr. Wilt wrote that insurers may haveto actually increase environmental reserves, particularly if aDemocratic ticket wins the White House next year.

“As the Environmental Protection Agency spends more money oncleaning up hazardous waste sites, their activities and attendantlegal pursuit of companies known to have dumped at those sitescreates insurance claims and reserving problems for insurers,” hewrote.